January 23, 2014

Rep. Takano Releases “Rent on the Rise in Riverside” Report

Washington DC – Earlier today, Representative Mark Takano (D-CA) released his “Rent on the Rise in Riverside” report showing that one in three renters in Riverside County is paying more than fifty percent of their income on rent, a twenty percent increase since 2007. The report also show that the number of people paying more than half of their income on rent in Riverside County is rising faster than other Southern California counties.
 
The report, gathered from information available in the Census’ American Community Survey, also showed that while rent has continued to rise, wages are still below their 2007 levels, making the increase in rent even more difficult to afford.
 
Key Findings:
 
  • City of Riverside: 12,365 households are paying over half of their income in rent, a 51.8 percent increase since 2007.
  • Moreno Valley: 8,481 households are paying over half of their income on rent, a jump of 40.4 percent since 2007 in raw households; however the overall percentage is close to where it was in 2007.
  • While wages have begun to rebound, the median income for Riverside County is still $5,524 below its 2007 level. As wages have dropped, rent continues to rise. Median rental costs in Riverside County increased $756 in the same amount of time.
  • The amount of people paying over half of their income on rent in Riverside County is rising faster than other southern California counties, increasing 20.1 percent since 2007.
  • In 2012, rental vacancy rates in the City of Riverside fell precipitously – falling some 53 percent, from 9.9 percent to 4.7 percent.
 
The report calls for several recommendations, including restored Section 8 funding, targeted homeless Veterans assistance, and increased housing counseling.
 
Analyzing the cause of the change, the report also determined that rents are partially rising because purchasing a home has become much more difficult for non-investors, who must finance the home and are subjected to tighter credit markets. Investors are more attractive to sellers because they are able to pay with cash.
 
The rise of large investor purchases has also seen an increase in poor upkeep and a lack in responsiveness by investor landlords to their tenants.
 
Private equity firms and real estate investment trusts, including The Blackstone Group, have purchased nearly 200,000 homes across the United States in communities hit hardest by the mortgage crisis, such as Riverside, Phoenix, Tampa, Sacramento, Atlanta, Los Angeles and Las Vegas.  Homes in these communities were the easiest to purchase at fire-sale prices. The report released by Takano addresses the danger of rental backed securities saying, “According to a recent report by the Federal Reserve, this type of, ‘investor activity may pose risks to local housing markets if investors have difficulties managing such large stocks of rental properties or fail to adequately maintain their homes. Such behavior could lower the quality of the neighborhoods in which investors own rental properties.’”
 
“Additionally, it’s unclear how these new financial products could react to a downturn. If vacancy rates rise or renters are unable to pay their rent, Blackstone and others may be forced to sell off vast amounts of property to make their investors whole. Selling a large amount of properties quickly would not only deprive renters of their home, but destabilize the market for homebuyers and send housing prices into a freefall.”
 
Representative Takano sent a letter today to the House Financial Services Committee requesting hearings on the rise of investor owned properties and the single-family rental backed securities saying, “The Financial Services Committee can help resolve unanswered questions about these new bonds and the impact they may have on the housing market. Proper oversight of new financial innovations is key to ensuring we don’t go down the same road of the unchecked sub-prime mortgage backed security, and create an unsustainable bubble that will wreak havoc when it bursts.”
 
Full text of letter:
 
 
January 23, 2014
 
 
The Honorable Jeb Hensarling
Chairman
Committee on Financial Services
U.S. House of Representatives
2228 Rayburn House Office Building
Washington, DC 20515
 
The Honorable Maxine Waters
Ranking Member
Committee on Financial Services
U.S. House of Representatives
2221 Rayburn House Office Building
Washington, DC 20515
 
 
\Dear Chairman Hensarling and Ranking Member Waters:
 
I am writing to request that the House Financial Services Committee hold hearings to examine the recent rise of investor owned properties and the development of single family rental backed securities.
 
California’s Inland Empire, which I represent, was hit particularly hard by the wave of foreclosures that occurred as a result of the financial crisis. Between 2008 and 2011, Riverside County saw 134,910 household foreclosures – a rate of one in every ten homes. During the height of the crisis, nearly one in five Inland Empire borrowers was behind on a home loan. Much of the debt from these mortgages was bundled, securitized, and put up for sale to investors. When the housing bubble finally burst there was a severe shock to the entire financial system. It is my belief that another disaster like this must be avoided at all costs.
 
After the flood of foreclosures, the Inland Empire housing market has seen record low prices and interest rates. Despite these strong incentives to buy, families and first-time homebuyers are finding it hard to purchase a home.  It is increasingly the case that these homes are being purchased by investment companies looking to rent out the property, leaving the family purchaser of modest means shut out of the market. While Southern California provides a clear example of this new trend, it is not the only region that has seen a rise in investment owned properties. Similar stories are coming out of Florida, Arizona, Nevada, and Georgia.
 
Now, these same investors have developed a new financial product linked to rental properties, a single family rental backed security. Last October, Blackstone announced that it would sell $479 million in bonds backed by the rental income from some 3,207 properties. If the Blackstone bond is successful, other companies are expected to follow suit.  These new products deserve thorough review before they become common place. Ratings agencies are at odds over how to assess the risk of these new bonds. Moody’s Analytics gave the bonds in the highest traunch a Triple-A rating, but Fitch has refused to rate the bonds citing their limited track record and vulnerability due to the intricacy of maintenance expenses, capital expenditures, property tax fluctuation, and the potential for local municipality involvement. The Financial Services Committee can help resolve unanswered questions about these new bonds and the impact they may have on the housing market. Proper oversight of new financial innovations is key to ensuring we don’t go down the same road of the unchecked sub-prime mortgage backed security, and create an unsustainable bubble that will wreak havoc when it bursts.
 
            Again, I respectfully ask that the House Financial Services Committee hold hearings to examine the rise in investor owned rentals and the brand new securitization that has been borne out of it.
 
Sincerely,
Mark Takano
 
###